If you live long enough, you might get to see history repeat itself. When I first started studying economics, forecasting had a heavy dose of person-to-person interaction, where the thoughts of other thought leaders were at least as important as any independent information I might discover. When I took my first course in statistics, I thought it would be an interesting sideline to either confirm or dispute a forecast. Little did I know that statistics would evolve into econometrics, beginning a reign of terror over the whole field of economics. Nothing mattered if it didn't have a formula.
Yes, I know that armies of Ph.D. economists have spent their lifetime constructing mathematically pure models of economic behavior. I also know that the very best models of the Fed and other central banks did not foresee the Global Financial Crisis. Of course, their response to this failure has been to construct "new & improved" economic models.
In fairness, all those things I was forced to learn about econometrics have been helpful in explaining market volatility to clients, but other than that . . . oh, yeah . . . it also helps me to understand political polling.
Still, it was with a certain glee when I saw the head of Canada's central bank admitted his disappointment with their economic models and instructed his economists to get on airplanes and go talk with industry executives face-to-face. Econometrics may once again be used to test a hypothesis -- but not to make decisions or forecasts.
Oh . . . such sweet satisfaction . . .
Yes, I know that armies of Ph.D. economists have spent their lifetime constructing mathematically pure models of economic behavior. I also know that the very best models of the Fed and other central banks did not foresee the Global Financial Crisis. Of course, their response to this failure has been to construct "new & improved" economic models.
In fairness, all those things I was forced to learn about econometrics have been helpful in explaining market volatility to clients, but other than that . . . oh, yeah . . . it also helps me to understand political polling.
Still, it was with a certain glee when I saw the head of Canada's central bank admitted his disappointment with their economic models and instructed his economists to get on airplanes and go talk with industry executives face-to-face. Econometrics may once again be used to test a hypothesis -- but not to make decisions or forecasts.
Oh . . . such sweet satisfaction . . .
